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How to Invest in 2020

The two previous blogs in this series (5 Reasons for Optimism in 2020 & 5 Reasons for Vigilance in 2020) identified some key global themes for 2020. But what’s an investor to do?

Here’s our 5 tips for successful investing in 2020:

  1. Diversify and look beyond conventional assets
  2. Renew your focus on ‘value’
  3. Be active: Sell into strength and buy when on sale
  4. Consider Emerging Markets
  5. Healthcare and aging continue to be a reliable trend

1.  Diversify and look past conventional assets:

The old adage says – “don’t put all your eggs in one basket”. Doing so may work in any one year but it’s unlikely to be the best strategy each and every year.

In 2020 expect an uneven global recovery to collide with deceptive valuations… essentially, expect more volatility. Spreading your investments into several different asset classes can reduce your portfolio’s overall volatility – when one asset class does poorly, another may be do much better.

Following strong traditional asset gains in 2019, it may even be worth looking beyond the comfort of conventional asset classes. Perhaps consider global infrastructure, commercial property and even Private equity.

2.  Renew your focus on ‘value’

Investors are recently obsessed with growth-orientated companies to the exclusion of most others. Regarding Price vs Earnings (PE) and other valuation measures, ignorance has been bliss but the dislocation between value and growth is extreme and may soon rectify.

Amid all the investment market ‘noise’, some things are eternal and ultimately prevail. Just as stocks priced for perfection eventually disappoint, don’t expect stocks trading at a discount to their true value to do so forever. Earnings sustainability and particularly cash flows, are extremely important.

2020 could be the year when ‘value’ investing comes back into vogue. If so, directly held ‘value’ stocks and contrarian managed funds like Platinum, Orbis, Allan Gray and SGH ICE ought to fare well. If global growth improves on easing trade tension, the miners and energy companies are also likely to benefit. It may well be a phase where too much focus on chasing past performance may end in tears.

3.  Be active: Sell into strength and buy when on sale

We’re cautiously optimistic about 2020 but expect bouts of volatility with overall lower returns than 2019. Active investors, selling into strength and buying the dips might do better than passive investors holding throughout.

4.  Consider emerging markets

A modest, broad economic recovery in 2020 may move yields and industrial commodities higher as recession fears fade. If so, the US dollar should gradually deflate, supporting an emerging economy particularly Asia.

Easing of US-China trade tensions gave emerging markets (EMs) a strong December, up 7.5% (in USD). But in 2019 they still lagged developed markets (DMs), EMs underperformed DMs by 10% in USD. In aggregate on price-to-book, EMs are now about 40% cheaper than DMs despite near-identical returns on equity.

5.  Healthcare and aging continues to be a reliable trend

Clients of Wotherspoon Wealth enjoyed strong investment gains from overweight to health care; think CSL, ResMed and Sonic Healthcare. Without ignoring valuation, the underlying growth trends for these companies should persist.

 

If you would like to discuss your investment options with one of our wealth management professionals, get in touch with Wotherspoon today!

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Disclaimer: All information in this article is intended to be general in nature for discussion purposes only. So you should not rely on it and seek personalised professional advice before making any decision.